9 Outstanding VariablesCompetitiveness of the market and efficiency of generation units provoked a fall in spot prices of about 40%  48.8 $/MWh1992 to 28.5$/MWh2002

10 Macroeconomic ChangesDic 2001 => political crisis with deep recession in economy led to the fall of the government; social instabilityAustral summer 2002New transition governmentDebt default; end of the fixed exchange rate (1$=1u$S) and devaluationeconomic emergency law => pesification of economyProfound economic crisis; inflation

11 Macroeconomic ChangesSince July 2002 => conditions begin to stabilize; relative normalization of the behaviour of economyMay 2003 => new elected governmentEvolution of exchange rate=>Increase of industrial demand due to greater competitiveness to export and import substitutionJan02-oct03Exchange rate => 200%Inflation => about 50%

12 Electricity Sector ScenarioTariffs to end consumers => social impossibility to increase tariffs due to economic crisis and people impoverishmentPesification of natural gas, energy and capacity prices on the WEMIncrease of imported fuel and maintenance costsUncertainty related with exchange rate evolution and expected performance of the generation units

13 Electricity Sector – Regulatory DecisionsKeep tariffs at the initial level, absorbing the difference with the stabilization fundCover variable costs (fuel, operation and maintenance) of each generator, permitting costs declarations each fortnightMaintain short term marginal cost system, with a cap price of 120 $/MWhModify capacity payments, turning them independent of actual dispatch and include base payment for almost every thermal plant available, and increasing it from 10 to 12 $/MWhRemunerate new reserves (competitive bids) against commitment to fulfill them, to ensure fuel (gas or liquid) and MW availabilityCreate a spot market in advance, similar to a contract, through competitive bids, to diminish volatility and risks. Decision based on minimum cost (+risk) criteria

15 Regulatory Decisions - ResultsTransition was managed, allowing to operate the system in good supply conditionsHigher marginal spot prices due to increase of maintenance and liquid fuel costs, with a cap price of 120 $/MWh. Differences between variable costs and maximum charged as uplift costsSpot market in advance, allowing to hedge, from mar to oct-03, about 40% of the spot market to an energy price of 24,4 $/MWh. The average real price resulted 3 $/MWh higher => savings => about 60M$.Generation availability performance similar as historical and new reserves fulfilled adequatelyStabilization fund exhausted since jul-03. Debt of the fund with generators of abut 280 M$ (1-2 months of payment). Priority of payment to cover variable costs (thermal units receive more money than hydro plants)

16 Expectations - ConcernsIncrease of tariffs required to gradually normalize situation. Gas increase pending, when adopted it will imply an additional increase to the WEMThe whole situation seems very difficult to handle politicallyDemand increase and exports to Brasil, along with default of the stabilization fund may lead to a significant increase of the deficit of supply riskMedium and long term viability and the lack of new investments in generation is then one of the major concerns, until the regulatory framework may be adapted and political solutions adopted.

17 Next steps From CAMMESA’s point of viewBe flexible enough to implement changes on rules and keep on running the system and the Market, in a delicate environment.Study and analyse scenarios to identify and anticipate risks, in order to help in the search of solutions.

18 For an Electrical Market without frontiersQuality, Technology & TransparencyFor an Electrical Market without frontiers¡Thanks for your attention! Colombia, October 2003Doubts => More info =>